Terry Myerson, head of Microsoft's operating systems unit, asked HTC last month to load Windows Phone as a second option on handsets with Google's rival software, said the people, who asked not to be identified because the talks are private. Myerson discussed cutting or eliminating the license fee to make the idea more attractive, the people said. The talks are preliminary and no decision has been made, two people said.

I hope HTC and every other Android OEM flips Microsoft the bird. The shoe's on the other foot now, Redmond.

It's difficult to be Microsoft these days. Their entire company and almost all it's divisions (office, services, etc) depend on Windows.

Windows is a product, and OEMs and users have to pay for it, yet Android is free (or at least much cheaper). If Windows loses market share and mind share, all their divisions will take a hit in the long term.

So, Microsoft will have many more chances to stay relevant if they offered Windows free of cost to OEMs and users, but that means they'd have to sacrifice a quarter of their current revenue.

It's a though choice, but they have diversified enough at this point. They should be able to afford it.

Windows and Office are still as strong as ever despite all the crap they've been piling in in the latest versions.

MS managed to impose a commercial model that no entrepreneur would even dream of, with their OS being forcefully bundled in virtually every computer sold in the world (IANAL, but AFAIK, this kind of "linked sale" is illegal in most European countries, but they still get to do it year after year).
And they get paid for it.

You're right, but this is also completely irrelevant. We're talking about Windows Phone here, not desktop Windows and they're not getting much return from WP right now by comparison to their other products. Offering WP for free would make a great deal of sense at this point, since no one other than themselves seem to want it. Plus, when you consider that MS has essentially coerced OEMs like HTC to pay them for Android, offering WP for free right now might look attractive. Personally I think the OEMs should tell Microsoft to fuck off after that little bit of mafia-style protectionism, but the OEMs will do what they think is best for their business in the end. Fortunately, at the moment, telling Microsoft to go shove it somewhere wouldn't hurt them all that much right now, as the customers want Android not WP anyway.

What happens when Google creates an Android for desktops? Don't tell me you haven't thought of it? The availability of key apps is what's holding them back. MS itself has said that it will create an office for android version soon. Other vendors will follow suite and Google will have a viable offering for desktops.